The Irish Experience – an apology

by Appalled Landlord

11:06 AM, 26th September 2016
About 2 years ago

The Irish Experience – an apology

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The Irish Experience – an apology

We at Property118 have often pointed out that the Irish government disallowed finance costs between April 1998 and December 2001, and the average rent rose by almost 50% from 600 Euros to almost 900 Euros.my bad

We inadvertently gave the impression that this measure affected existing loans, and was retroactive. Having found the TAX BRIEFING from the Office of the Chief Inspector of Taxes Issue 32 – June 1998, we now realise that this was incorrect.

INTEREST ON EXISTING LOANS WAS UNAFFECTED. INTEREST ON NEW LOANS FOR IMPROVEMENTS OR REPAIRS TO EXISTING PROPERTIES WAS UNAFFECTED.

Page 35 explained that it only affected “interest on borrowed money used on or after 23 April 1998, in the purchase, improvement or repair of a residential premises”.

Transitional arrangements even extended the deductibility of interest to loans taken out on or before the 31 December 1998 for the purchase or construction of residential premises under certain circumstances.

The measure did not apply to loans taken out, at any time, for improvements or repairs to property that had been a rented residential property at any time in the 12 months to 23 April 1998.

In other words, the measure only applied to new purchases or new construction. It merely deterred people from buying or building to let, it did not bankrupt them. It stopped the supply of rented accommodation increasing, and this was enough to make the average rent go up by almost 50%. The measure was repealed as of 1 January 2002.

Section 24 has already had a similar effect in the UK, before it has even come into force. Home providers have stopped financing new developments, stopped re-habilitating run-down buildings and stopped converting large buildings into HMOs.

So the Irish experience between 1998 and 2001 is no guide to what will happen to the supply of rented accommodation in the UK when home providers realise that their tax might exceed their rental profit, or that they have to pay tax on a loss. All we can say is that it will be incalculably worse than it was in Ireland around the turn of the millennium.

The Irish Government did introduce a retroactive measure in April 2009 when it disallowed 25% of interest. This is explained in [4.8.6] Deductibility of Loan Interest (section 97(2)(e)).

This is milder than what S 24 will be doing by 2020/21. For example, someone whose income of £65,000 comes entirely from rental property would pay tax at 48% under the current Irish rules, rather than at 83% under S 24.

Even this milder approach caused such a shortage of accommodation in Ireland for tenants in receipt of certain social housing supports that the law was changed with effect from the start of 2016 to exempt home providers who will take such tenants.

S 24 will be more draconian, and again it has already had a similar effect here to that in Ireland. Many home providers in the UK have had to increase rents in anticipation of the extra tax they will have to pay, which meant evicting those on capped benefits who cannot afford them. Other providers have decided not to take tenants on benefits in future.

How much damage will Osborne’s lunatic tax be allowed to cause in this country before it is repealed?



Comments

Gromit

11:37 AM, 26th September 2016
About 2 years ago

I've emailed this to my MP.

I urge you to do the same.

Dr Rosalind Beck

11:40 AM, 26th September 2016
About 2 years ago

A very important discovery, AL. This should be front page news at least on the Money sections of the national newspapers. We all need to send it to journalists. I will do so today, but hope others will too as it is then more likely to receive national coverage.

michael fickling

11:53 AM, 26th September 2016
About 2 years ago

I hope we can put this succinctly to the court during our case. Its a very powerful point . No doubting that. There is a bit of an error in using a form of words saying "it is no guide" to what will be the outcome here...it is ...very much a guide and we are saying it is..because it drove rents up markedly on what was as you very rightly say a less draconian policy. Anyway its clearly very important as it is a FACT rather than opinion..that rents rose markedly in the Irish situation and we can therefore predict marked rises here especially with its extra and effectively retrospective aspects . All of which makes the Clause 24 policy papers wrong and obviously so ,in failing to predict the outcome on rents and availability of rental property down the line despite the known history and subsequent rescinding of the same or similar policy in Ireland. There is a political lever here which still might be pulled....encouraging the government to act now rather than face a more embarassing u turn subsequently as per the Irish government. Politically they might throw in Brexit uncertainties as an additional rationale for pulling the clause if they acted now and save a bit of face. I also wonder what happened to availability of rentals in the irish situation..possibly also important...does anyone know??

Dr Rosalind Beck

12:03 PM, 26th September 2016
About 2 years ago

Reply to the comment left by "michael fickling" at "26/09/2016 - 11:53":

Good points, Michael. Do you mind if I possibly paraphrase some of what you have written in a comprehensive report I am doing on Section 24?

michael fickling

13:20 PM, 26th September 2016
About 2 years ago

Reply to the comment left by "Dr Rosalind Beck ." at "26/09/2016 - 12:03":

Feel free to do so thank you.

Larry Sweeney

22:33 PM, 26th September 2016
About 2 years ago

This is an excellent example of the damage caused to the market by constant government intervention. Gordon Brown introduced a 10% corporate tax regime for small companies, then later repealed his own measure. Capital gains tax was reduced ,then raised again to 28%. We now have sect 24. When will these idiots step back and allow the market to operate with a flat tax rate to allow forward planning. The constant tinkering with tax rates and allowances is not helpful and undermines the market. The Irish example amply proves this.

michael fickling

9:57 AM, 27th September 2016
About 2 years ago

I agree about the governments interference especially since it fails to take heed of the fact that apart from London and its south east commuter belt the UK as a whole simply does not have and has not been having unusual increases in house price growth. Quite the reverse in fact. For example I recall that last year the "telegraph" web site showed that London and S/E had house price growth 12 times higher than the midlands and north over an extended period ( i believe ten years ), Most of the uk has.(.over recent years) been pretty "flat" on house price "growth" in fact.This renders any national policy such as last summers Clause 24 highly inappropriate and completely illogical to start with. Also Mr Carneys stated belief that we landlords and our buy to lets... represent the single greatest threat to economic stability of this country...yep you will recall thats what he said..thats what he told the government...not brexit.. not chinese trade dominance..not terrorism..not the middle east..not inappropriate credit systems...but private domestic landlords...who are in fact holding 20% of housing (maybe)..spread across the uk. Thats not just flawed thinking on Mr Carneys part ( and flawed policy arising from same ) it actually demonstrates complete incompetence in his strategic outlook. I will happily give him 200/1 that the next UK economic depression arises from domestic Buy to Let activity !. Actually i fancy it will be another banking crisis..that triggers any major decline..perhaps I digress but we shall see.
..Remember also that the figures for house price growth can not reflect and account for increasing values ...by adding.. central heating installations, additions by..attic rooms,double glazing,bedsit conversion, extensions,`garages,granny flats ,basement conversions etc etc. Just about every single home in the uk is improved over time...usually several times over....hey presto...house price "growth"..... E.G A house bought for say 120k..sold 2 years later..with a garage added..and fully tidied up...say 20k spent...sells for 140k.....the rather silly house price growth calculation?..16.6% growth. Whereas in fact...if real growth is 2.9% P/A ( there are some longer term stats. about to that effect )... distortion is maybe around 300% ??. from a pretty minor upgrade and a very common type of scenario. The improvement to almost ALL houses over time is in itself a massive distorter of the national stats. And there are also other distorting factors, but no one seems interested....So >>>>>>>>>>
In short if house prices really did "GROW" organically as touted ...every home would be priced in the millions now after many years of natural growth and compounding..the maths simply dont work..Improvements and changes/additions and regional variations are just two of the reasons why. Regional variations and actual basic counting/computation errors have led to a very popular myth. Added value together with regional divergence is mixed in without being properly recognised or described as such and is a massive distorter.Those we pay to lead us have swallowed the myth of house price growth, hook line and sinker and have implemented very flawed policy as a direct result. If we want to stop this rather old pantomine of myth then policy.. being replayed over and over, we would have to drive those messages home. Not an easy task in a world of sound bite commentary and media hype.

Gromit

10:18 AM, 27th September 2016
About 2 years ago

Reply to the comment left by "michael fickling" at "27/09/2016 - 09:57":

...."Mr Carneys stated belief that we landlords and our buy to lets… represent the single greatest threat to economic stability of this country…yep you will recall thats what he said..thats what he told the government…not brexit.. not chinese trade dominance..not terrorism..not the middle east..not inappropriate credit systems…but private domestic landlords…who are in fact holding 20% of housing (maybe)..spread across the uk. Thats not just flawed thinking on Mr Carneys part ( and flawed policy arising from same ) it actually demonstrates complete incompetence in his strategic outlook"....

I don't believe Carney is that stupid, except for letting George Osborne pull his strings. He can no longer claim that the BoE is "independent".

H B

23:10 PM, 27th September 2016
About 2 years ago

Although this would be taken as good news by less leveraged or unleveraged landlords - higher yields with a similar cost base.

But knowing that it only affected a smaller number of landlords makes it much harder to argue that that alone was responsible for the increase in rents in Ireland in this period.

Appalled Landlord

23:57 PM, 27th September 2016
About 2 years ago

Reply to the comment left by "H B" at "27/09/2016 - 23:10":

Hi H B

“knowing that it only affected a smaller number of landlords”

Do you have any information about the proportion of landlords that were affected, and about their share of the rental stock?

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